Question 1

The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations.The auditor reviewed all work orders that were capitalized as part of the equipment costs.Which of the following is the ASB transaction assertion most closely related to the auditor's testing?

Accepted Answer

The answer of The engineering department at Omni Company built...

Question 2

Which of the following best describes the primary role and responsibility of independent external auditor?

Accepted Answer

The primary role and responsibility of an independent external auditor is to express an opinion on the fairness of a company's annual financial statements and footnotes. This is done through an audit of the company's financial records and internal controls. The auditor is responsible for providing an independent assessment of the company's financial position and performance, which is used by investors and other stakeholders to make informed decisions about the company. The auditor is not responsible for producing the company's financial statements, providing consulting advice, or identifying control problems and deficiencies (although they may do so as part of the audit process).

Question 3

The engineering department at Omni Company built a piece of equipment in the company's own shop for use in the company's operations.When looking at the ending balance for the fixed asset account the auditor examined all work orders,purchased materials,labor cost reports,and applied overhead that were capitalized as part of the equipment costs.Which of the following is the ASB balance assertion most closely related to the auditor's testing?

Accepted Answer

The auditor's testing of work orders, purchased materials, labor cost reports, and applied overhead related to the equipment costs is aimed at ensuring that the ending balance of the fixed asset account is accurate and valid. Valuation assertion is closely related to the accuracy and validity of the recorded amount for an asset or a liability.

Question 4

The audit objective that all transactions are recorded in the proper period is related most closely to which of the Audit Standards Board (ASB)transaction assertions?

Accepted Answer

The assertion related to recording transactions in the proper period is cutoff, which is the timing of when transactions are recorded in the financial statements. Cutoff ensures that transactions are recorded in the proper period, and this aligns with the audit objective of recording transactions in the proper period.

Question 5

The audit objective that all balances include all items that should be recorded in that account is related most closely to which one of the ASB balance assertions?

Accepted Answer

The completeness assertion pertains to ensuring that all transactions and balances that should be recorded have been recorded. Therefore, the audit objective of making sure all balances include all items that should be recorded falls under the completeness assertion.

Question 6

Because of the risk of material misstatement,an audit of financial statements in accordance with generally accepted auditing standards should be planned and performed with an attitude of

Accepted Answer

Professional skepticism is necessary to maintain an unbiased mindset and to critically assess the evidence gathered during the audit. This helps auditors to effectively identify and evaluate the risk of material misstatement and to ensure the accuracy and validity of the financial statements. Independent integrity and objective judgment are also important qualities for auditors, but they are not as directly related to managing the risk of material misstatement as professional skepticism. Impractical conservatism is not a recognized auditing standard or principle.

Question 7

The audit objective that footnotes in the financial statements should be clear and expressed such that the information is easily conveyed to the readers of the financial statements is related most closely with which of the ASB presentation and disclosure assertions?

Accepted Answer

The assertion related to clear and easily conveyed information in the footnotes of financial statements is most closely related to the Understandability assertion, which is concerned with whether information is presented in a clear and understandable manner for the intended users.

Question 8

The audit objective that all the transactions and accounts presented in the financial statements represent real assets,liabilities,revenues,and expenses is related most closely to which of the PCAOB assertions?

Accepted Answer

The assertion of existence or occurrence is most closely related to the objective of ensuring that all the transactions and accounts presented in the financial statements represent real assets, liabilities, revenues, and expenses. This assertion relates to the idea that the transactions and events have occurred and pertain to the entity in question.

Question 9

Assurance services involve all of the following,except

Accepted Answer

Assurance services provide reasonable, rather than absolute, assurance that the information being examined is reliable and relevant. Therefore, choice C is incorrect as it provides an incorrect statement about the nature of assurance services. A, B, and D are all correct as they are all examples of the types of information and formats that assurance services can cover.

Question 10

In order to be considered as external auditors with respect to government agencies,GAO auditors must be

Accepted Answer

The answer of In order to be considered as external...

Question 11

The auditor's judgment concerning the overall fairness of the presentation of financial position,results of operations,and cash flows is applied within the framework of

Accepted Answer

The auditor's judgment concerning the overall fairness of the presentation of financial position, results of operations, and cash flows is applied within the framework of the applicable financial reporting framework, which in the United States is generally accepted accounting principles (GAAP). The auditor evaluates whether the financial statements comply with GAAP and provide a true and fair view of the company's financial position and performance. The other options, such as quality control, the concept of materiality, and the evaluation of internal control, are factors that are considered within the overall audit process but do not provide the framework for the auditor's judgment on the overall fairness of the financial statements.

Question 12

Which of the following is the essential purpose of the audit function?

Accepted Answer

The essential purpose of the audit function is to determine whether the client's financial statement assertions are fairly stated. While fraud detection is an important aspect of auditing, it is not the primary purpose. The examination of individual transactions is also not the primary purpose, as audits rely on sampling techniques rather than examining every single transaction. The assurance of consistent application of correct accounting procedures is a secondary purpose, as the primary focus is on financial statement assertions.

Question 13

Which of the following is not a PCAOB assertion about inventory related to presentation and disclosure?

Accepted Answer

Inventory being properly stated at its cost on the balance sheet is related to valuation and allocation assertion, not directly to presentation and disclosure. Presentation and disclosure assertions focus on how information is presented in financial statements and accompanying notes, including proper classification and adequate disclosure of accounting policies and amounts.

Question 14

The audit objective that all transactions are recorded in the proper account is related most closely to which one of the ASB transaction assertions?

Accepted Answer

The classification assertion is concerned with whether transactions are recorded in the appropriate accounts in the financial statements. Therefore, the audit objective of ensuring that all transactions are recorded in the proper account is related most closely to the classification assertion.

Question 15

Which of the following best describes assurance services?

Accepted Answer

Assurance services are independent professional services that evaluate the reliability and relevance of information provided to decision makers. This includes services such as audits, reviews, and compilations that enhance the quality of information for users. While assurance services may involve some reporting on the client's financial statements or management assertions, the primary focus is on improving the overall quality of information. Therefore, option B is the best choice.

Question 16

Which of the following best describes the main reason independent auditors report on management's financial statements?

Accepted Answer

The main reason independent auditors report on management's financial statements is to provide assurance to users of the financial statements that they are fairly presented and free from material misstatement. One reason for the need of independent auditors is the potential for conflicting interests between the management that prepares the statements and the persons who use the statements. Independent auditors provide an unbiased, objective evaluation of the financial statements, which helps to mitigate these conflicts of interest.

Question 17

Which of the following is not a recommendation usually made following the completion of an operational audit?

Accepted Answer

An operational audit focuses on evaluating the effectiveness and efficiency of operations, systems, and processes. It does not typically include attesting to the fairness of financial statements, which is the role of a financial auditor. Therefore, option C is not a recommendation following the completion of an operational audit. Options A, B, and D are typical recommendations as they focus on maximizing the use of resources, achieving business objectives, and complying with company policies, respectively.

Question 18

Which of the following is not included in The American Accounting Association (AAA)definition of auditing?

Accepted Answer

The AAA definition of auditing includes a systematic process, assertions about economic actions, and established criteria. However, potential conflict of interest is not explicitly included in the definition.

Question 19

What is the term used to identify the risk that the client's financial statements may be materially false and misleading?

Accepted Answer

Information risk refers to the risk that the information used by auditors to make decisions about the financial statements may be incorrect or incomplete, leading to the possibility of the statements being materially false and misleading. Business risk and client risk are broader categories of risk that encompass a range of factors that could impact the client's financial performance, while risk assessment is a process used by auditors to identify and evaluate all types of risk affecting the audit engagement.

Question 20

The audit objective that all balances include items owned by the client is related most closely to which one of the ASB balance assertions?

Accepted Answer

The audit objective that all balances include items owned by the client is most closely related to the "Rights and obligations" assertion. This assertion concerns whether the entity has the rights to the assets listed and the obligations related to the liabilities recorded, ensuring that the entity owns or has legal rights to the assets reported on its balance sheet.

Quiz 1: Auditing and Assurance Services